Which of the Following Statements Is FALSE

question 102

Multiple Choice

Which of the following statements is FALSE?

• A)The optimal level of debt D*,balances the costs and benefits of leverage.
• B)As the debt level increases,the firm benefits from the interest tax shield (which has present value τ*D).
• C)If the debt level is too large firm value is reduced due to the loss of tax benefits (when interest exceeds EBIT),financial distress costs,and the agency costs of leverage.
• D)As the debt level increases,the firm faces worse incentives for management,which increase wasteful investment and perks.

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